China Longyuan Power, the mainland’s biggest producer of wind-power, returned to debt markets last night with a $300 million three-year bond that crossed the line despite the summer lull.
The deal slightly missed expectations at a shade under the $350 million suggested to investors by the lead arrangers, while demand was muted. The book was twice covered.
Banks were allocated 43%, fund managers 45%, central banks and sovereign wealth funds 6%, pension and insurance 2% and private banks 4%. There was speculation among bankers that Chinese banks had put in chunky orders.
Three mainland banks -- Agricultural Bank of China, Citic Securities and Wing Lung Bank -- arranged the deal, alongside Goldman Sachs, Morgan Stanley and UBS. Goldman Sachs and Wing Lung were the joint global coordinators.
One source familiar with the deal defended the decision to keep the deal size down. “We wanted to print a deal that traded up so we decided to go for smaller size," he said.
The bond offered a yield of 3.43% and was trading tighter in the secondary market with a yield of 3.25% on Tuesday morning. The initial price guidance for the bond was three-year Treasuries plus 295bp and the bonds priced to yield Treasuries plus 285bp, at the tight end of the final guidance.
However, with emerging market bonds hit by outflows, there was not much interest among investors. “It’s not really on my radar, it is not really a high quality investment grade,” said one Hong Kong-based investor on Monday afternoon. The company is rated BBB+ by S&P and Baa3 by Moody’s and the issue is expected to be rated BBB- by S&P.
The bonds were issued by Hero Asia Investment. China Longyuan Power group has a contractual obligation to keep the issuer solvent, but this is not a guarantee the issuer will pay its debts.
China Longyuan Power last tapped the bond market with a $400 million hybrid in December last year – the first hybrid from a mainland-incorporated company listed in Hong Kong. Goldman Sachs, Morgan Stanley and UBS arranged that deal.
The company is a subsidiary of state-owned Guodian group, one of China’s five main power-generating companies.
